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Hindustan Motors: Lancer no answer

For one of India's last surviving indigenous carmakers, Hindustan Motors Ltd, producing the top-rated vehicle was never enough to ensure profitability.

And now the road ahead looks even rougher, due to moves by the Indian government to allow the import and sale of fully assembled vehicles.

To stem losses and compete with the snazzy models churned out by foreign automakers producing cars in India, Hindustan Motors began making the sporty Mitsubishi Lancer compact in 1998 under licence at a low-cost, low-tech assembly plant near Madras.

The Lancer immediately became the highest-rated car in India in terms of customer satisfaction. Yet sales never reached forecast levels, and now the vehicle faces competition from a wave of imports aimed at the same buyers.

Nevertheless, G Shyam Sundar, the man who runs the Lancer assembly plant, remains hopeful.

"The first quarter has been terrible but we expect things to improve," Sundar told Reuters in an interview. "We hope to break even on a cash basis by March 2002."

For the past three months to June, Hindustan Motors reported a net loss of Rs 257.7 million ($5.5 million), on sales that fell 19.5 per cent from a year earlier to Rs 2.16 billion.

To turn the tide, Hindustan Motors plans to begin importing fully assembled four-wheel-drive Mitsubishi Pajero and sell them in India from January.

But it expects to sell only 500-600 a year. The Pajero will be priced at about Rs three million ($63,680), making it one of the expensive vehicles sold here.

"We are also looking at importing other models" from Mitsubishi Motor Corp Ltd's plant in Australia, Sundar said.

He forecast sales of the Lancer at 7,000-7,500 in the current year to March, against an initial target of 8,000 and actual sales of 7,650 last year.

J D POWERS

In a survey of car owners conducted by J D Powers, the Lancer was the top-ranked vehicle in India the past two years, both in terms of the fewest defects and overall customer satisfaction.

In the Initial Quality Study of how many problems a model is likely to have in the first three to five months of ownership, the Lancer came first among 22 models surveyed.

Its score last year of 84 compared with 111 for the second-ranked Maruti Baleno, an industry-wide average of 234 -- and 546 for the last-ranked Ambassador, a 1950s-era museum piece also made by Hindustan Motors.

In a separate survey asking customers what they liked about their cars, Lancer also ranked No 1.

That survey looked at things like engine performance, ride and handling, comfort and convenience, sound system and styling.

Lancer costs 800,000 to just over Rs 1 million depending on model, options and where it's sold. That puts it in the premium mid-sized car segment that accounts for just 3.5 per cent or 20,000 of the 567,000 cars sold in India last year.

The Lancer has competed with the Opel Astra, the Honda City and the Maruti Baleno in the premium end of the mid-sized car market.

"We became the most premium car," said Sundar. "After Lancer, it was the Mercedes Benz."

NEW MARKET SEGMENT

Unfortunately, no longer. Last month Honda Motor Co Ltd began selling the Accord in India, and Hyundai Motor Co its Sonata sedan. Those are the first two models in a new market segment composed of cars costing from 1.1 million to Rs 2.0 million.

"After Sonata and the Accord, we were no longer a touch-me-not," Sundar said.

Estimates of the market for such cars -- aimed at upper-income Indians ready to trade up from premium mid-sized cars -- range from 5,000 to 15,000 vehicles.

To conform to World Trade Organisation standards, India in April began allowing automakers to import fully assembled cars.

That prompted several carmakers to lay plans to begin selling larger saloons. Mercedes Benz announced it planned to start selling its CLK, SLK and M class cars, Ford Motor Co the Mondeo and Opel, a German subsidiary of General Motors Corp, its Vectra.

The import plans of some were upset, however, when the government subsequently raised the basic import duty on fully assembled cars to 60 per cent from 35 per cent, pushing effective duties to 120 per cent from 85 per cent.

OTHER PRODUCTS

Hindustan Motors sold 25,677 cars in 2000-2001 (April-March), 4.3 per cent of total industry sales.

The Calcutta-based company also sold 2,443 utility vehicles. Its products in that segment include the Trekker, and the RTV range of utility vehicles made with design inputs from Australia's OKA Motors.

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